In FY18, we target over 20% growth in retail loans, says Sunil Mehta

Q&A with managing director and chief executive, Punjab National Bank

After some reduction in Punjab National Bank’s bad loans in March quarter, managing director and chief executive SUNIL MEHTA is confident of growing recoveries faster than slippages and is looking at regaining some lost ground on loan growth in FY18. On the sidelines of a conference, he talks about the road ahead for the bank. Edited excerpts:

What is Punjab National Bank's (PNB's) exposure to the top 50 accounts identified by the Reserve Bank of India (RBI) and Indian Bank's Association in their NPA resolution ordinance? How much has been provided for?

Our exposure to these accounts is roughly Rs 30,000 crore. 58 per cent is our provisioning coverage ratio and we have already provided more than that in these accounts. Even 50 per cent conversion will not hit the bank. It is early to assess the actual haircuts, which will be assessed at the time of resolution of individual accounts. Earlier, under the joint lenders forum (JLF), the criteria required were higher as a minimum of 60 per cent of lenders by number and 75 per cent by value, had to agree to the deal. Now that has been reduced in the Ordinance. It should be 50 per cent by numbers and 60 per cent by value. And, other JLF members will have to follow the line if these criteria are met. This will improve the efficacy of JLF mechanism.

What was the divergence on bad loans for PNB as compared to RBI assessment?

It is a very small number for us, of about Rs 200 crore only, which is very minimal given the size of our portfolio. 

What is the strategy to exit the non-core assets? What are the valuations of these businesses on a combined basis?

We have identified few of the non-core assets that we may divest. We will go for cost-benefit analysis on whether they can add value to the existing shareholders if we retain those assets. If that is the case, we will revamp these businesses, otherwise, we will divest our stakes. We are looking to sell stake in PNB Housing Finance and will finalise our strategy on this front in the first or second week of June. These businesses are valued around Rs 9,000 crore in total.

What is the targeted credit growth for the bank in FY18?

We are planning a minimum growth of 20 per cent in our retail portfolio though internally we are targeting 25 per cent growth in this book for FY18. We expect a growth of 12 per cent on an overall basis. Our credit portfolio has not grown much in FY17 and we were below the industry levels. We want to make up for this in the current year. I am optimistic about the growth in the economy in FY18, resolution on steel and infrastructure sectors and goods and services tax implementation. These three together will push the economy as well as working capital demand. 

As PNB's whole book migrates to marginal cost of lending rate (MCLR), what is the net interest margin (NIM) outlook for the next 12 months?

Margins are under pressure because of the surplus liquidity in the market and low credit off-take in the industry. Also, there was a greater transmission of policy rates during FY17 as banks migrated from base-rate mechanism to MCLR mechanism. These have impacted NIMs. We will be going after the AA-rated and AAA-rated accounts in the corporate segment where margins will be less but volumes will be more. This will lead to a higher book size and drive our growth. For maintaining our margins, we have started capitalising on our strengths in rural and semi-urban areas. These are the markets where we will push our MSME (micro, small and medium enterprises), agriculture and retail lending. These are the segments where we get higher margins. We expect our global NIMs to stabilise around 2.3-2.5 per cent.